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  • So, how bad is the COVID fallout?

    Tens of millions of people cannot make their rent payments thanks to the COVID-19 shutdown. Texas and Florida are in the worst of the outbreak at this point.

    How is that affecting our properties?

    - Pete

  • #2
    Re: So, how bad is the COVID fallout?

    Originally posted by RebbePete View Post
    Tens of millions of people cannot make their rent payments thanks to the COVID-19 shutdown. Texas and Florida are in the worst of the outbreak at this point.

    How is that affecting our properties?
    In a recent e-mail message that Matt sent out to Fund V investors, he stated that 95% of the rent due each month has been collected. I don't know if that percentage applies to Fund III and Fund IV investors. The most recent acquisition is near Washington D.C. so I would imagine rents will be quite stable since the federal government will just pay people to not work. The most recent acquisition brings up another point, though. Sales of properties could be for a lower price than before the Covid-19 outbreak. Assuming this will impact Eastham Capital's properties, they'll either have to accept lower bids or hold on to the properties longer, banking on the idea that prices will increase after Covid-19 passes or the dollar depreciates significantly.

    I will say that I am quite astonished at the per-unit costs of apartments nowadays. I have to wonder if it's a nasty bubble or a sign that the purchasing power of the dollar is going to vaporize. Assuming the Federal Reserve prefers to protect the USD and the USD game as the reserve currency for international trade over protecting the various asset bubbles the Fed has created, at this point in time, I'm thinking about sitting out the next Eastham fund unless there are substantial drops in apartment prices.

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    • #3
      Re: So, how bad is the COVID fallout?

      i wonder about the oil/gas bankruptcies and their effect on the many properties owned in texas. in general, though, it's too soon to judge about rent collections- incomes have been artificially buoyed by the ppp payments, the $600/wk top-ups on state unemployment insurance payments and the pua program for the self-employed and gig workers. the ppp payments are running off right now, the $600 top-ups end july 31 unless there is new legislation and i'm not sure when the pua payments end. meanwhile death rates have finally turned up again, lagging case rates as always. hopefully the class b properties owned by eastham has an economically stable population of renters, but we'll see.

      Originally posted by milton kuo
      Assuming the Federal Reserve prefers to protect the USD and the USD game as the reserve currency for international trade over protecting the various asset bubbles the Fed has created, at this point in time, I'm thinking about sitting out the next Eastham fund unless there are substantial drops in apartment prices.


      the dollar's value is officially the province of the treasury dept,not the fed, and i think most of the gov't would be happy to see a weaker dollar. the fed's swap lines have kept the dollar from rising further.

      meanwhile, protecting asset prices appears to have become the fed's central mandate. i'm thinking that real estate will provide an inflation hedge - a real asset which generates an income stream based on rents which can be raised at least as fast as the price level in general.
      Last edited by jk; 07-12-20, 05:28 PM.

      Comment


      • #4
        Re: So, how bad is the COVID fallout?

        How do you think people will react in different parts of the country when their unemployment supplements run out and they are still unemployed?

        Do the growing movements to not pay rent, not pay mortgages, have legs?

        BLM and antifa attracted a lot of angry people who wanted to burn and break stuff. Cooler heads held back from joining in the mayhem.

        But massive unemployment and growing economic insecurity will be the uniting factor for civil unrest that race wasn't. People who weren't motivated to get teargassed for issues of racial injustice might actually start demonstrating over this.

        I think Washington will have to extend benefits indefinitely or create something like UBI to avoid this. If they don't, the ensuing riots will force them to do it eventually.

        Be kinder than necessary because everyone you meet is fighting some kind of battle.

        Comment


        • #5
          Re: So, how bad is the COVID fallout?

          Originally posted by shiny! View Post
          How do you think people will react in different parts of the country when their unemployment supplements run out and they are still unemployed?

          Do the growing movements to not pay rent, not pay mortgages, have legs?

          BLM and antifa attracted a lot of angry people who wanted to burn and break stuff. Cooler heads held back from joining in the mayhem.

          But massive unemployment and growing economic insecurity will be the uniting factor for civil unrest that race wasn't. People who weren't motivated to get teargassed for issues of racial injustice might actually start demonstrating over this.

          I think Washington will have to extend benefits indefinitely or create something like UBI to avoid this. If they don't, the ensuing riots will force them to do it eventually.
          you may be right [except that i think there's just as much violence being perpetrated by the right, and by mere criminals, as the left]. in the 1930's you had father coughlin, huey long, the communist party, the german-american bund, the america-firsters and the ku klux klan among other groups. in times like these there's plenty of anger, hatred and frustration to go around.

          the rent, eviction and mortgage moratoria, along with the ppp, and various industrial bailouts [e.g. for the airlines, which promised to not fire anyone through sept 30, and have announced many thousands of layoffs for oct 1; 15000 for united airlines alone] were all passed under the illusion that the pandemic was going to be a 2-3 month affair, a few more months at most, and then things would return to "normal." meanwhile the so-called stimulus was really just income maintenance, and hasn't done anything to improve productivity or help the economy structurally.

          it is looking more and more like we are entering a depression which will not quite rival the one of the 1930's. the best estimates i've seen say that about 10 million of the newly unemployed will not have jobs to go back to. if biden is elected and the democrats flip the senate, i expect jobs programs reminiscent of the new deal, hopefully at least improving our deteriorated infrastructure. i would not be surprised to see most welfare programs ended by being rolled into a more broadly distributed ubi instead. it will be preferable to 1930's style bread lines, or 2020 style 5 mile long lines of cars waiting to pick up groceries at food banks. income and wealth inequality, which has come to match the levels of the late 1920's, will be moderated by increased corporate taxes, and increased taxes on higher incomes, on capital gains and on dividend income.

          just read a headline that 5.4 million people lost their health insurance because they just lost their jobs. this might make people rethink how much they "love" the private insurance they get via their employer. in a democratic adiministration expect at a minimum a public option added to obamacare, heavily or completley subsidized based on ability to pay. [i wonder if medicaid will be abolished and rolled into that program.]

          if you're wondering how all this will be funded, the treasury will issue t-bills and t-bonds which will be purchased by the primary dealers. the primary dealers will then either repo them to the fed, or sell them outright to the fed, which will create the money to conduct those operations. easy, peasy.
          Last edited by jk; 07-13-20, 11:26 PM.

          Comment


          • #6
            Re: So, how bad is the COVID fallout?

            Originally posted by jk View Post
            you may be right [except that i think there's just as much violence being perpetrated by the right, and by mere criminals, as the left]. in the 1930's you had father coughlin, huey long, the communist party, the german-american bund, the america-firsters and the ku klux klan among other groups. in times like these there's plenty of anger, hatred and frustration to go around.
            I don't see the amount of violence being perpetrated by the right as you do, but perhaps I'm not looking in the right places. By criminals, yes. More violence committed by criminals than either the right or the left, but that doesn't get air play. Michael Burry got censored by Twitter just for showing a government chart showing perpetrators and victims of crimes broken down by race.

            the rent, eviction and mortgage moratoria, along with the ppp, and various industrial bailouts [e.g. for the airlines, which promised to not fire anyone through sept 30, and have announced many thousands of layoffs for oct 1; 15000 for united airlines alone] were all passed under the illusion that the pandemic was going to be a 2-3 month affair, a few more months at most, and then things would return to "normal." meanwhile the so-called stimulus was really just income maintenance, and hasn't done anything to improve productivity or help the economy structurally.

            it is looking more and more like we are entering a depression which will not quite rival the one of the 1930's. the best estimates i've seen say that about 10 million of the newly unemployed will not have jobs to go back to. if biden is elected and the democrats flip the senate, i expect jobs programs reminiscent of the new deal, hopefully at least improving our deteriorated infrastructure. i would not be surprised to see most welfare programs ended by being rolled into a more broadly distributed ubi instead. it will be preferable to 1930's style bread lines, or 2020 style 5 mile long lines of cars waiting to pick up groceries at food banks. income and wealth inequality, which has come to match the levels of the late 1920's, will be moderated by increased corporate taxes, and increased taxes on higher incomes, on capital gains and on dividend income.
            New Deal type infrastructure programs would be excellent all the way around. They always just think of highways, but our electrical grids and water/sewer systems are in sore need of TLC as well.

            UBI could work if it could be funded without massive inflation (what good is $1200 a month if everything quintuples in price?) but they would need to simultaneously eliminate the current gov't safety net programs that tax dollars fund. Welfare, food stamps, housing assistance, etc.

            just read a headline that 5.4 million people lost their health insurance because they just lost their jobs. this might make people rethink how much they "love" the private insurance they get via their employer. in a democratic adiministration expect at a minimum a public option added to obamacare, heavily or completley subsidized based on ability to pay. [i wonder if medicaid will be abolished and rolled into that program.]
            I've never bought the line that "Americans LOVE their current health insurance." Bulltwinky! In truth, congresspeople love their taxpayer-funded health insurance. If we got what they got, we'd love it, too.

            if you're wondering how all this will be funded, the treasury will issue t-bills and t-bonds which will be purchased by the primary dealers. the primary dealers will then either repo them to the fed, or sell them outright to the fed, which will create the money to conduct those operations. easy, peasy.
            I don't really understand all that means. Easy peasy, perhaps, but what effect will it have on inflation and dollar strength, reserve currency status, etc?

            Be kinder than necessary because everyone you meet is fighting some kind of battle.

            Comment


            • #7
              Re: So, how bad is the COVID fallout?

              Originally posted by shiny! View Post
              I don't really understand all that means. Easy peasy, perhaps, but what effect will it have on inflation and dollar strength, reserve currency status, etc?
              The government will pretend to pay the people working on the infrastructure projects and the people working on the infrastructure projects will pretend to work.

              Comment


              • #8
                Re: So, how bad is the COVID fallout?

                Originally posted by Milton Kuo View Post
                The government will pretend to pay the people working on the infrastructure projects and the people working on the infrastructure projects will pretend to work.
                Thank you for that, Milton. Best laugh I've had in a long time :-)

                Be kinder than necessary because everyone you meet is fighting some kind of battle.

                Comment


                • #9
                  Re: So, how bad is the COVID fallout?

                  Originally posted by Milton Kuo View Post
                  The government will pretend to pay the people working on the infrastructure projects and the people working on the infrastructure projects will pretend to work.
                  no, we're not ready to become the soviet union, in which that was a common joke.

                  i expect approx 2 years of mild deflation, segued to stagflation for a period of years and then eventually accelerating inflation before some reincarnation of paul volcker brings down the hammer. if you look at the 1940's you'll see there were years with 7 or 10% inflation, but throughout the long bond was pinned at 2.5%. only inflation can "cure" the problem of overindebtedness. sufficient inflation will be the debt jubilee.

                  the dollar is and will remain the global reserve currency until or unless the chinese are both willing to make the yuan open and convertible, and back it with gold. i don't see that happening. other currencies than the dollar have already intruded on its role as a means of exchange. but none of them have the capital depth and bond market to act as stores of value.

                  being the reserve currency doesn't mean the dollar can't be devalued, as it must be.

                  Comment


                  • #10
                    Re: So, how bad is the COVID fallout?

                    Hello jk, et al -- very long time! Appreciate your thoughts above. What's the downside tail look like in your scenario?

                    Also wondering if EJ has weighed in with a substantive article/post on where we are right now?

                    Comment


                    • #11
                      Now we're two months later. So far, I must admit, things are looking a lot rosier than I had feared.

                      How do opportunities look out there for Fund V and VI properties? I would think that there may be bargains to be had in the next few years.

                      Comment


                      • #12
                        we'll soon be reaching the end of q3 and hopefully receiving a quarterly report. i think q3 will tell us a lot.
                        if rates are low, cap rates are up as long as the properties are really able to keep throwing off cash. if rent payment deteriorates and the values of properties are impaired it will hurt both resale value and rental cash flow. otoh, fund v still has some buying to do and presumably would take take advantage of lower prices. and the same will hold true for the new fund vi that is in the process of being assembled.

                        Comment


                        • #13
                          Originally posted by jk View Post
                          otoh, fund v still has some buying to do and presumably would take take advantage of lower prices. and the same will hold true for the new fund vi that is in the process of being assembled.
                          What's everybody's opinion on investing in the upcoming Fund VI? I get a sense that renters have been squeezed about as much as they can be squeezed. There are a lot of things that have me feeling this. For starters, the per unit price of apartments seems to regularly breaks six figures in states where costs of living aren't that high. Secondly, the returns on Fund IV are lagging the returns seen in Funds II and III. With the current amount of capital still invested, we would have to see over 100% in net capital gains on remaining capital (I'm assuming that we'll get another 20% or so in rents over the term of the fund) to equal the returns of Funds II and III.

                          I'm aware there are a lot of things that could cause the investment environment for MFH to look better but I'm seeing a lot of negatives at the moment: High prices, a lot more players, a mind-boggling amount of money (only for rich people, not for lessees) sloshing around thanks to incompetent central bank policies, unknown duration and quantity of SARS 2.0 lockdowns, etc.

                          Comment


                          • #14
                            fund ii began in 2012, fund iii in 2014, fund iv in 2016. i think the market evolved over that time period and the earlier funds were able to pick up their acquisitions more cheaply. thus their higher rates of return [i'm accepting your statements on this, milton, rather than checking myself]. if prices drop then the last 17% of fund v [capital yet to be called] as well as the new fund vi should similarly benefit.

                            the other factor to consider, imo, is that we are in the midst of a transition to an inflationary, rather than disinflationary, environment. i think of mf real estate as an income producing hard asset, like infrastructure, which should offer some inflation protection.

                            i would welcome alternative analyses.

                            also, q3 is about to end, and q3 did not benefit as much from federal programs because of the roll off of the ppp and $600 unemployment top ups. thus rent collections in q3 should tell us a lot.

                            my hope is that by focusing of class b properties [esp converting c's to b's] the tenants are middle class with somewhat stable employment. the worst hit jobs are least paid jobs [and, odd to say, the most "essential"]. i would think those people are in class c rentals or worse. but in any event we will soon have some data.

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